Bill L. and Patricia M. Spencer - Page 32

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          Significantly, neither the sale from petitioners to SPC-SC, nor             
          the sale from petitioners to SPC-FL, was documented apart from              
          the journal entries.  The record is devoid of any documentary               
          evidence of an indebtedness (i.e., a written note or other                  
          similar instrument) running directly from SPC-SC or SPC-FL to               
          petitioners.  The assets acquired from SSI were, in effect,                 
          simultaneously transferred to the ultimate users, SPC-SC and SPC-           
          FL, and the S corporations paid the entire consideration for such           
          assets from their own current operating revenues directly to SSI.           
          Petitioners reported no interest income and claimed no interest             
          expense for the amounts allegedly paid on their behalf by SPC-SC            
          and SPC-FL to SSI or SCNB.                                                  
               Moreover when SPC-SC and SPC-FL missed payments to SSI due             
          to poor cash-flow, SSI elected not to enforce the acceleration              
          clause in the S/B and S/S/S notes against petitioners.  Rather,             
          SSI revised the terms of the notes and never called on                      
          petitioners to pay.  From such evidence we infer that SSI did not           
          look to petitioners to pay the indebtedness--rather, SSI looked             
          to the ultimate owners of the business and assets for payment;              
          i.e., SPC-SC and SPC-FL.  Consequently, petitioners' role in the            
          transactions was, at best, indirect.25                                      

          25   Furthermore, with respect to the SPC-FL transaction, the               
          record contains additional evidence that in substance SSI sold              
          its Florida operating assets directly to SPC-FL.  Form 8594,                
          filed with SPC-FL's 1990 Form 1120S, indicates that the assets in           
                                                             (continued...)           




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